Monthly Markets Memo - March 26, 2020
by Dan Zalipski, CFA
The global markets are volatile as the world continues to tackle the COVID-19 crisis. With a lot of us ‘sheltered in place’ and working from home, we have had the opportunity to binge on news about the virus and its impact on the markets and economy. This is precisely why I’d like to focus on some positive developments.
Central banks around the globe are implementing monetary policies aimed toward protecting their respective economies. The Federal Reserve was quick to react to the developing crisis. They slashed interest rates to zero. They have also revived 2008 crisis-era programs designed to bring liquidity and stability to the inner-workings of the financial markets. The complexity of their actions is beyond the scope of this piece but can be summarized as extraordinary and extensive. The Fed is benefitting from lessons learned in the last crisis. They are putting programs and policies in place aimed at keeping the ‘plumbing’ of the financial markets running smoothly during these times of market stress and volatility. The Bank of Japan and European Central Bank have also expanded their own monetary policies.
The Federal Reserve warned lawmakers their policy responses could only do so much. They specifically cited the difficulty for Fed action to have a meaningful impact for small businesses or the average consumer and suggested Congress should step in to fill the gap. After several days of negotiating, the U.S. is preparing to vote on a $2 trillion stimulus package aimed to provide relief to struggling individuals and business impacted by the pandemic. The package is reported to include direct cash payments to individuals, financial support for airlines and healthcare, and access to low interest loans for small businesses. By targeting small businesses and individuals most affected by this pandemic, Congress is hoping to soften the economic impact and provide a lifeline to those in need. They are also protecting those industries vital to the global economy, such as the airlines. Governments all over the world are stepping up to support their economies and citizens through this pandemic.
The markets remain volatile and choppy. They continue to trade off headline developments related to the pandemic. We remain patient and defensive within our portfolios. We continue to research and identify areas of opportunity created by the recent market sell-off. However, the uncertainty around the extent of the economic impact caused by the pandemic remains high. The timeline of a potential recovery is unclear but expected to be swift. While volatility may be with us for a while, investors can look ahead to the opportunities before us.
One last piece of positive news out this week. Wuhan, the epicenter of the COVID-19 pandemic, is getting back to a more normal life. Their factories are coming back online and citizens are getting back to work. The Chinese government is set to lift the lockdown on the city on April 8th.
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